Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6515.
- Add a stop-loss at 0.6650.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 0.6600 and a take-profit at 0.6700.
- Add a stop-loss at 0.6515.
The AUD/USD pair was unchanged as the US dollar index moved sideways and as a risk-on sentiment remained. The pair was trading at 0.6571 on Tuesday morning, a few points above last week’s low of 0.6513.
Risk-on sentiment
A risk-on sentiment resumed in the market as fears of the US credit rating downgrade eased. This sentiment was evidenced by the sharp rebound of American stocks as the Dow Jones and the Nasdaq 100 indices jumped by more than 0.50%.
At the same time, the US dollar index (DXY) was relatively unchanged while the CBOE VIX index moved upwards. This performance means that investors expect that the American economy will not be affected last week’s credit downgrade by Fitch, one of the biggest rating agencies in the US.
The AUD/USD pair also wavered as the market reflected on the hawkish statements by Fed officials like Raphael Bostic and Michelle Bowman. In their statements, the two officials noted that the Fed has more room to hike interest rates since inflation remains above the 2% target in the US.
The labor market is also highly tight, with the unemployment rate sitting at a multi-decade low of 3.5%. Wage growth has also been strong, with the average wage index rising by 4.4% in July.
The AUD/USD pair also reacted to the relatively mixed housing numbers from Australia. The data revealed that private house approvals and building approvals fell again in July.
Recent reports have shown that the country’s housing sector is going through challenges because of the high cost of building and labor shortages. As a result, analysts at Westpac expect that house prices in Sydney will jump by more than 10% this year.
AUD/USD technical analysis
The AUD/USD pair formed a break-and-retest pattern, by moving to the important resistance level at 0.6596, the lowest level on June 28. In price action analysis, this pattern is usually a sign of bearish continuation. It has dropped below the 25-period and 50-period moving averages.
The pair is also a few points below the neckline of the double-top pattern. Therefore, the pair will likely continue falling as sellers target the key support at 0.6513, the lowest point on August 3rd.
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